Archive for the ‘Wal-Mart’ Category

Friday Roundup

Friday, December 4th, 2015

Roundup2Top blog, event notice, scrutiny alerts and updates, what do DOJ FCPA attorneys do, quotable, and for the reading stack.  It’s all here in the Friday Roundup.

Top Blog

I am pleased to share that FCPA Professor has been honored by the American Bar Association as a “Top 100 Blawg.”  (See here).

Described by others as “the Wall Street Journal concerning all things FCPA-related,” and “the most authoritative source for those seeking to understand and apply the FCPA,” FCPA Professor has previously been named a Top Law Blog for in-house counsel by Corporate Counsel and a Top 25 Business Law Blog by LexisNexis.  FCPA Professor readers include a world-wide audience of attorneys, business and compliance professionals, government agencies, scholars and students, journalists and other interested persons.

In addition to informing readers of FCPA news and developments in a timely and in-depth manner, FCPA Professor is a comprehensive website which features, among other things:

  • links to original source documents;
  • a detailed FCPA 101 page;
  • a resource portal; and
  • hundreds of subject matter categories designed to facilitate in-depth FCPA research and analysis.

All of this takes time, money, and substantial effort, yet the content on FCPA Professor is provided free to readers and without compromising and distracting advertisements.

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider a donation – a voluntary yearly subscription - to FCPA Professor.  Yearly subscriptions to other legal publications or sources of information can serve as an appropriate guide for a donation amount.

Event Notice

I will be participating in a free telephonic event on Tuesday, December 8, 2015 at 3pm EST. Sponsored by the Young Advocates and Criminal Litigation Committees of the ABA, the event is titled: “Ask the Professor: What You Need to Know About Anti-Bribery Laws.”

The event will be moderated by Terra Reynolds (Paul Hastings). Click here to learn more and to register.

Scrutiny Alerts and Updates

British American Tobacco

The company, with ADRs traded in the U.S., was recently the focus of this in-depth piece by the BBC. According to the article:

“[T]he BBC obtained hundreds of documents that reveal how BAT employees bribed politicians, public officials and even people working for a rival company in Africa. [...] In 2012, BAT lobbyist Julie Adell-Owino arranged bribes totalling US$26,000 for three public officials in Rwanda, Burundi and the Comoros Islands. All three officials were connected to a United Nations effort to reduce the number of tobacco related deaths.”

As highlighted in this prior post, in 2010 U.S. tobacco companies Alliance One and Universal Corporation resolved FCPA enforcement based on alleged improper payments, including in Africa.

J.P. Morgan

The Wall Street Journal focuses on J.P. Morgan’s FCPA scrutiny for its alleged hiring practices in China. According to the article, J.P. Morgan hired 222 candidates under a program known internally as “Sons and Daughters.” The article makes much of the alleged fact that 45% of the hires were referred by Chinese government officials or employees of state-owned companies.  However, according to the article, an equal percentage (44%) were nongovernmental referrals – an issue that could be relevant to corrupt intent.

Vimpelcom

This recent post highlighted Vimpelcom’s disclosure of a $900 million reserve in connection with its FCPA and related scrutiny. The prior post noted that the disclosure was ambiguous as to the various components of the $900 million.

Bloomberg reports:

Vimpelcom “is in talks to pay about $775 million — a near record — to settle U.S. allegations it paid bribes in Uzbekistan to win business, according to three people familiar with the matter. The Amsterdam-based company’s resolution with the Justice Department and the Securities and Exchange Commission could be announced in January, said the people, who asked not to be identified because details of the proposed settlement aren’t public.”

Bloomberg also goes in-depth into the burgeoning Uzbekistan telecom scandal here.

PTC

The company (formerly known as Parametric Technology) has been under FCPA scrutiny since 2011 and recently disclosed:

“We have been in discussions with the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) to resolve an investigation concerning expenditures by our business partners in China and by our China business, including for travel and entertainment, that apparently benefited employees of customers regarded as state owned enterprises in China. This matter involves issues regarding compliance with laws, including the U.S. Foreign Corrupt Practices Act. We have recorded liabilities of $28.2 million as a result of our agreements in principle with those agencies to settle the matter. There can be no assurance that we will enter into final settlements on the agreed terms with these agencies or, if not, that the cost of any final settlements, if reached, would not exceed the existing accrual. Further, any settlement or other resolution of this matter could have collateral effects on our business in China, the United States and elsewhere.”

 Wal-Mart

The media continues to gush over Wal-Mart’s FCPA scrutiny.  In the latest example, the Wall Street Journal reports:

“A U.S. investigation into potential foreign bribery by Wal-Mart Stores Inc. has unearthed evidence of possible misconduct by the retailer in Brazil, after investigators found little to support the sweeping allegations involving Mexico that initially prompted the probe, according to documents and people familiar with the matter. Federal prosecutors are examining $500,000 in payments that they believe ultimately went to an individual hired to obtain government permits the company needed to build two stores in Brasília, Brazil’s capital, between 2009 and 2012, an investigative document shows.”

What do DOJ FCPA Attorneys Do?

To the extent a job listing is an accurate depiction, this is what DOJ FCPA attorneys do:

“The Criminal Division, U.S. Department of Justice, is seeking qualified, experienced attorneys for two-year renewable term positions in the Fraud Section located in Washington, DC. The incumbent will serve as a Trial Attorney in the Foreign Corrupt Practices Act (FCPA) Unit or the Securities & Financial Fraud Unit (SFF) and, as such, will independently direct, conduct, and monitor investigations, prepare for and conduct trials, and advise on pleadings and other court filings.

Generally, as a Trial Attorney in the FCPA Unit or the SFF Unit, the incumbent:

  • In collaboration with unit managers, carries out and fosters effective investigations and prosecutions, including advising on strategy and legal complexities, and developing litigation priorities, policy, and legislative recommendations. Recommends charging decisions and proposes dispositions with regard to assigned cases.
  • Partners with and leads Assistant U.S. Attorneys and attorneys in other federal law enforcement agencies in the development, management and trial of complex white collar and corporate investigations and prosecutions. Engages in all phases of investigation and litigation, including, but not limited to, using the grand jury, advising federal law enforcement agents, utilizing international evidence collection tools, preparing appropriate pleadings, and litigating motions and trials before U.S. District Courts across the country.
  • Collaborates with foreign prosecutors and foreign law enforcement officers on international investigations.
  • Evaluates reports of potential violations of the FCPA / securities and financial fraud laws from both internal and outside sources to determine whether investigation is warranted.
  • Advises and instructs Assistant U.S. Attorneys on complicated questions of law and Departmental policy with respect to the FCPA / securities and financial fraud laws.
  • Represents the United States in direct negotiations and discussions with corporate counsel and high-level officials. Participates in discussions with opposing counsel for defendants and in the formulation of settlements often having far-reaching legal consequences.
  • Advises and consults with the Assistant Attorney General, Deputy Assistant Attorney General, Section Chief, et al., reporting on the status of all cases and matters related to civil/criminal remedies.
  • Serves as an expert, providing advice and policy determinations in matters involving the planning, discussion and coordination of the activities related to the investigation and litigation of FCPA cases. Oversees the preparation and litigation assignments of lower graded attorneys, paralegals and clerical personnel.”

Quotable

One thing high-ranking DOJ officials most certainly do is give numerous speeches.

In the latest example, DOJ Deputy Assistant Attorney General Sung-Hee Suh delivered this keynote address at the ABA Criminal Justice Section’s inaugural Global White Collar Crime Institute in Shanghai (an event, I am pleased to say, was organized by my Southern Illinois University School of Law colleague Professor Lucian Dervan).

Set forth below is an expert of Suh’s address.

On internal investigations:

“Until last year, I worked for 15 years in private practice representing companies – often in the context of criminal or regulatory investigations. I believe I have a good sense of the challenges that companies and their counsel face in determining the appropriate scope of an internal investigation. But some of those challenges appear to stem from a misperception that the longer and more expensive and more resource intensive the company’s internal investigation, the more favorably the government will view the company’s cooperation. But broad, aimless investigations by a company – just as by the government – are counter-productive. As we in the Criminal Division have long emphasized, and continue to stress today, an investigation should be narrowly focused on getting to the bottom of what happened, identifying who within the company was involved, and – if the company seeks cooperation credit — providing that information to us on a timely basis.”

On transparency:

“[W]e understand that it has not always been clear why the Department required a corporate entity to plead guilty to resolve a criminal case, as opposed to a deferred or non-prosecution agreement, or why we declined to pursue a criminal resolution altogether with another corporate entity that engaged in similar misconduct. I have also heard companies and their counsel say that they have no idea how the government’s monetary resolutions were arrived at – that it sometimes appears as if the government just picks these numbers out of thin air. Also notable has been the trend among companies over the last several years against voluntary self-reporting, including – and perhaps especially – in the FCPA space, in part due to what is perceived, as noted during this morning’s sessions, that there is little or no benefit to self-reporting. Some lawyers have advised their clients that it’s simply more rational to wait to see if the government comes knocking and then cooperate if and when that happens.”

[...]

“[T]o those companies that are disinclined to self-report in the belief that the government will never know – I say, think again. In the anti-corruption space, the Fraud Section and the Federal Bureau of Investigation are deploying significantly more resources to detect and prosecute companies that choose not to self-disclose in FCPA cases. We’re hiring an additional 10 prosecutors in the FCPA Unit, an increase of over 50%, and the FBI has established three new squads devoted to international corruption investigations and prosecutions.”

On compliance programs:

“No compliance program is foolproof. We understand that. We also appreciate that the challenges of implementing an effective compliance program are compounded by the everincreasing cross-border nature of business and of criminal activity. Many companies’ businesses are all over the world. They are creating products and delivering services not only here in China but overseas and are operating across many different legal regimes and cultures. We also recognize that a smaller company doesn’t have the same compliance resources as a Fortune-50 company. Finally, we know that a compliance program can seem like “state of the art” at a company’s U.S. headquarters, but may not be all that effective in the field, especially in far-flung reaches of the globe.”

*****

For your viewing pleasure, a video of a roundtable with new DOJ compliance counsel Hui Chen and DOJ Fraud Section Chief Andrew Weissmann.  The first portion of the event consisted of the DOJ officials respond to (likely scripted) questions by a moderator, the second portion – when the video recorder was turned off – consisted of the DOJ officials responding to audience questions.

Reading Stack

I did not come up with the title of the entry or its narrative, but I did answer the questions posed to me in this Corporate Crime Reporter entry about the political aspects of FCPA enforcement as well as questions about an FCPA compliance defense – a defense I have long advocated for (see here for the article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

*****

A Wall Street Journal op-ed by Professor Lucian Dervan titled “The Injustice of the Plea-Bargaining System.”

*****

A good weekend to all.

Friday Roundup

Friday, November 20th, 2015

Roundup2Checking in on Wal-Mart’s professional fees and expenses, still pouting, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart’s Professional Fees and Expenses

In its recent 3Q FY2016 earnings call Wal-Mart stated:

“FCPA and compliance related costs were approximately $30 million, comprised of $22 million for ongoing inquiries and investigations, and $8 million for our global compliance program and organizational enhancements.”

Doing the math, Wal-Mart’s 3Q FCPA and compliance-related costs is approximately $470,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past eight quarters have been approximately $470,000, $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $93 million (through the first three quarters).

Still Pouting 

This prior post discussed why SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout. Namely, that Canada does not offer deferred prosecution agreements and enforcement authorities must actually prove cases to prevail.

As noted here, with a new government in Ottawa, SNC-Lavalin’s new CEO continues the pout.

“SNC-Lavalin Group Inc.’s CEO wants the new federal government to allow companies to settle corporate corruption cases — as what happens in the United States and United Kingdom — so that Canadian firms can remain competitive. In his first speech since taking control of Canada’s largest engineering company last month, Neil Bruce said federal corruption charges laid against a few of SNC-Lavalin’s legal entities unfairly point the finger at 40,000 employees who did nothing wrong. Instead, Canada should allow corporate settlements outside the court system so that SNC-Lavalin and other Canadian businesses are not at a disadvantage when competing against rival firms in other G7 countries, Bruce said.

[...]

The company has said it will plead not guilty to the charges but is willing to pay a fine for the alleged transgressions of former employees.”

Scrutiny Alerts and Updates

Affinia Group

As noted in this May 2015 post, Affinia Group (a North Carolina based company involved in design, manufacture, distribution and marketing of industrial grade products and services, including extensive offerings of aftermarket parts for automotive and heavy-duty vehicles) has been under FCPA scrutiny and the company disclosed:

“As previously disclosed, the Company conducted a review of certain allegations arising in connection with business operations involving its subsidiaries in Poland and Ukraine. The allegations raised issues involving potential improper payments in connection with governmental approvals, permits, or other regulatory areas and possible conflicts of interest. The Company’s review was supervised by the Audit Committee of Affinia’s Board of Directors and conducted with the assistance of outside professionals. Affinia voluntarily self-reported on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and cooperated fully with the U.S. government.  The U.S. Department of Justice has advised that it has decided to decline to prosecute the Company in this matter.”

Several companies have been under scrutiny based on alleged improper relationships with Petrobras.  Three such companies: Ensco, Transocean, and Vantage Group recently  made disclosures.

Ensco

The company recently disclosed:

“Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil during 2001 and, in 2008, entered into a drilling contract with Petrobras for DS-5, a rig Pride had ordered from a shipyard in South Korea.

Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition, Ensco conducted similar compliance reviews, the most recent of which commenced in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras.

While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to DS-5 – specifically, that Petrobras overpaid under the drilling contract. We believe this allegation is inaccurate, as publicly available data show that the contract’s compensation terms were in line with other contracts signed by Petrobras and other customers with our competitors during the same timeframe (late 2007 and early 2008). We provided this information to Petrobras in June 2015. We continue to operate DS-5 under its existing contract. In addition, all our other rigs contracted to Petrobras – ENSCO 6001, 6002, 6003 and 6004 – continue to work under their contracts.

Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Subsequently, the internal audit report and the alleged irregularities were referenced in Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including a former marketing consultant who provided services to Pride in connection with DS-5. The former marketing consultant entered into a plea agreement with the Brazil authorities. This plea agreement was referenced in a Brazilian court proceeding relating to a project for a competitor having no connection to us. This court proceeding document states that another court action would be made public in due course with respect to DS-5; to date no further proceedings relating to DS-5 have been released.

Independent counsel, under the direction of our Audit Committee, has substantially completed the investigation of these allegations by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the contracting of DS-5 as well as the former marketing consultant.

To date, our Audit Committee has found no evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant. Although the investigation is substantially complete, we cannot predict whether any new or additional allegations will be made and what impact those allegations will have on the timing or conclusions of the investigation. Our Audit Committee will examine any new or additional allegations and the facts and circumstances surrounding them. To date, we have not been contacted by Brazil authorities, and no authority has alleged wrongdoing by Pride or Ensco or any of their current or former employees. In June and July 2015, we voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”), respectively, to advise them of this matter and our Audit Committee’s independent investigation, and we provided them an update on the investigation in September 2015. We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”

As highlighted in this previous post, in 2010 Pride International resolved a $56 million FCPA enforcement action based on alleged conduct in Nigeria, India, Mexico, Venezuela and other countries.

Transocean

The company recently disclosed:

“We are currently investigating allegations made by a former Petrobras employee relating to the award of a drilling services contract to us. These allegations were made public through an investigation being conducted by Brazilian authorities in response to allegations of corrupt practices involving Petrobras business. To date, we have not identified any wrongdoing by any of our employees or agents in connection with our business in Brazil. We will continue to investigate these types of allegations and, if contacted, will cooperate with governmental authorities. Through the process of monitoring and proactive investigation, we strive to ensure no violation of our policies, code of integrity or law has, or will, occur; however, there can be no assurance as to the outcome of these matters.”

As highlighted in this previous post, in 2010 Transocean resolved a $20.7 million FCPA enforcement action based on alleged conduct in Nigeria.

Vantage Drilling

The company recently disclosed:

“In July 2015, we became aware of media reports that the Brazilian agent that we used in the contracting of the Titanium Explorer drillship, Mr. Padilha, had entered into a plea arrangement with the Brazilian authorities in connection with his role in obtaining bribes for former Petrobras executives.  Mr. Padilha, who simultaneously has represented several international companies in their contracts with Petrobras, provided evidence to the Brazilian prosecutors of an alleged bribery scheme between former Petrobras executives and Mr. Su, a former member of our Board of Directors and a significant shareholder.  Mr. Su was the sole owner of the company that owned the Titanium Explorer at the time the alleged bribe was paid.  At the same time we learned of Mr. Padilha’s plea agreement, we voluntarily contacted the SEC and the DOJ to advise them of these recent developments. We subsequently terminated his advisory contract with us.  Our internal and independent investigations, which are still ongoing, to date have found no evidence of wrongdoing by our employees or participation in any manner with the inappropriate acts alleged to have been conducted by Mr. Padilha.

We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that we have violated the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”), or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”

Reading Stack

“The (Unintended) Consequences of the Yates Memo” here from Kurt Wolfe (Allen & Overy).

“The Yates Memo’s Chilling Effect on FCPA Self-Disclosure” here from Alison Tanchyk and Melissa Coates (Morgan, Lewis & Bockius). “Ironically, the unintended consequence [of the Yates Memo] may be fewer companies opting to self-disclose FCPA concerns, leading to fewer individual corruption prosecutions.”

*****

A good weekend to all.

Wall Street Journal Pulls A Nana Nana Boo Boo On The New York Times Walmart Reporting

Wednesday, October 21st, 2015

Nana2On Monday, the Wall Street Journal published this page one article titled “Wal-Mart Bribery Probe Finds Few Signs of Major Misconduct in Mexico” about the company’s long-standing Foreign Corrupt Practices Act scrutiny.

The WSJ article largely represented a “nana nana boo boo” article seemingly in response to the New York Times previous Wal-Mart FCPA reporting in that the WSJ asserts, citing unnamed sources, that the actual legal investigation of Wal-Mart (as opposed to the journalism investigation) “uncovered evidence that contradicted some of the allegations in the New York Times articles.”

More fundamentally, Wal-Mart’s entire FCPA scrutiny since December 2011, and the media reporting of it, demonstrate that greater restraint and discipline is needed by various FCPA commentators (and others) who are all to quick to react to media reporting of FCPA issues by non-lawyer journalists.

First some background.

In April 2012, the New York Times ran a front-page story (here) titled “Vast Mexico Bribery Case Hushed Up by Wal-Mart After Top-Level Struggle.” The conduct at issue in the Times article related to Wal-Mart’s largest foreign subsidiary, Wal-Mart de Mexico (“Wal-Mart Mexico), and suggested that Wal-Mart Mexico “orchestrated a campaign of bribery to win market dominance” and that the entity “paid bribes to obtain permits in virtually every corner” of Mexico. The April 2012 NY Times article resulted in intense world-wide media scrutiny of Wal-Mart.

The WSJ article this week states in pertinent part:

“A high-profile federal probe into allegations of widespread corruption at Wal-Mart Stores Inc.’s operations in Mexico has found little in the way of major offenses, and is likely to result in a much smaller case than investigators first expected, according to people familiar with the probe.

The three-year investigation isn’t over, but most of the work has been completed, and it is possible the case could be resolved with a fine and no criminal charges leveled against individual Wal-Mart executives, these people said.

As part of the same investigation, investigators found evidence of bribery in India, centering on widespread but relatively small payments made to local officials there, the people said. Wal-Mart is likely to face U.S. foreign-bribery charges under the Foreign Corrupt Practices Act over those payments, they said.”

[...]

The Justice Department launched its investigation after a pair of 2012 New York Times articles about alleged bribes the world’s largest retailer by revenue might have paid in Mexico to obtain permits to build stores there, the people said. Mexico is home to about 20% of Wal-Mart’s roughly 11,500 locations.

The articles portrayed in detail millions of dollars Wal-Mart’s Mexico unit allegedly paid to middlemen. They described permits that had previously been hard to obtain coming through within days or weeks after the alleged payments. The articles also described how senior Wal-Mart executives appeared to shut down an internal inquiry into the suspicious payments.”

Let’s pause for a moment right here.

The notion that Wal-Mart’s FCPA scrutiny began with the New York Times articles (published in April 2012 and December 2012) is false, but has become part of the narrative surrounding Wal-Mart’s FCPA scrutiny.  As reported here by FCPA Professor in December 2011, Wal-Mart disclosed in FCPA scrutiny in December 2011.

Back to the WSJ article.

“The [government's] probe uncovered evidence that contradicted some of the allegations in the New York Times articles, said people familiar with the investigation. The five-year statute of limitations made it very unlikely that other instances of alleged misconduct could be prosecuted, these people said. But it is still possible, these people said, that new evidence could emerge at the final stages of the investigation to change officials’ view of the case.

They said the federal findings so far largely match up with the results of an internal probe Wal-Mart launched in the wake of questions from the New York Times.

Matt Purdy, the New York Times’ deputy executive editor, said the stories “were largely based on internal Wal-Mart documents that described hundreds of suspect payments involving millions of dollars. One of those documents, written by Wal-Mart’s own investigators, concluded that there was ‘reasonable suspicion’ to believe Wal-Mart de Mexico repeatedly violated the Foreign Corrupt Practices Act. To this day, Wal-Mart has not taken issue with the articles we published. Instead, the company says it has spent tens of millions of dollars to improve its compliance with anticorruption laws and it has removed several key executives involved in the matter.”

[...]

Much of the suspected bribery investigators unearthed in India involves thousands of small payments to low-level local officials to help move goods through customs or obtain real-estate permits. The vast majority of the suspicious payments were less than $200, and some were as low as $5, the people said, but when added together they totaled millions of dollars.

The people said investigators found similar payments in Mexico, but the bulk of such activity seemed to be in India.

[...]

Because penalties under the FCPA are often connected to the amount of profit the alleged misconduct generated, the payments in India wouldn’t be likely to result in any sizable penalty, since Wal-Mart’s operations there haven’t been particularly profitable, said people familiar with the matter.”

The WSJ then quotes an FCPA commentator who states that the now apparent scope and severity of Wal-Mart’s FCPA issues is “totally unexpected.”

Perhaps the now apparent scope and severity of Wal-Mart’s FCPA issues are “totally unexpected” if one fell hook-line-and-sinker for the New York Times coverage.

And to be sure, many people did and the New York Times article created a media feeding frenzy and offered up a divisive company as a punching bag.

Many lined up to take punches at Wal-Mart and used the company’s FCPA scrutiny to advance various policy positions even though the only “support” for the positions was an article written by a non-lawyer journalist.

Much of Wal-Mart FCPA scrutiny coverage was overblown and at times breathless (see here - Wal-Mart’s scrutiny “will test FCPA enforcement in new ways.”).

Not here at FCPA Professor.

Readers of this website will recall that I have consistently called the FCPA aspects of Wal-Mart’s scrutiny “unremarkable.”  See here for the 2012 article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Explosure,” see here for coverage on the one year anniversary of the New York Times article, here for coverage on the two year anniversary of the New York Times article, and here for coverage on the three year anniversary of the New York Times article.  See here and here for additional critical commentary about the New York Times article.

Among other things, I stressed that Wal-Mart’s FCPA scrutiny should not depend on a talented journalist at a leading newspaper writing a story about a well-known company. Indeed, the New York Time story would have been largely the same if the journalist and New York Times devoted its significant resources to other instances of FCPA scrutiny.

During Wal-Mart’s FCPA scrutiny, I have communicated with the New York Times journalist who won the Pulitzer Prize for the Wal-Mart articles and expressed my concern with the FCPA aspects of the article and how the article omitted certain relevant legal information.  Further, I appeared with the journalist at the ABA’s Sixth Annual National Institute on the Foreign Corrupt Practices Act on a panel titled “Captain or Passenger?: How to Navigate the Rough Waters of an FCPA Media Crisis,” (September 19, 2013). During the event, I again questioned certain of the FCPA information in the New York Times articles and the response of the journalist was along the following lines: I am a journalist, I tell stories, I leave the legal issues to others.

Throughout Wal-Mart’s FCPA scrutiny, I have predicted that Wal-Mart’s FCPA scrutiny will likely not end up in the Top 5 FCPA enforcement actions of all time in terms of settlement amount. Time will tell whether this prediction is true (and with the seeming “just because” escalation of FCPA fine and penalty amounts – see here - it may not be true).

In short, many, many people reacted to the New York Times Wal-Mart articles in strange and unwarranted ways.

Time will tell whether the New York Times or Wall Street Journal narrative is correct (and to be sure the WSJ, like other media sources, has written FCPA articles in the past that omitted relevant information and/or otherwise turned not be true).

Yet, the lesson for the FCPA community is to show greater discipline and restraint before basing arguments and advocating positions based on a newspaper article written by a non-lawyer journalist.

Friday Roundup

Friday, August 21st, 2015

Roundup2Wal-Mart related, quotable, spot-on, scrutiny alerts and updates and prosecutorial common law defeat. It’s all here in the Friday roundup.

Wal-Mart Related

In its recent 2Q FY2016 earnings call Wal-Mart stated:

“FCPA and compliance-related costs were approximately $30 million, comprised of approximately $23 million for the ongoing inquiries and investigations, and approximately $7 million for our global compliance program and organizational enhancements. Last year, FCPA and compliance-related costs were $43 million in the second quarter. We expect FCPA-related expenses to continue to trend down, so we now expect our full year FCPA-related expenses to range between $130 million and $150 million. This compares to our guidance in February of $160 to $180 million.”

Doing the math, Wal-Mart’s 2Q FCPA and compliance-related costs is approximately $470,000 per working day.

Over the past approximate four years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $470,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past seven quarters have been approximately $516,000, $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $63 million (projections for the remainder of the FY of approximately $67 – $87 million)

Quotable

Regarding the recent BNY Mellon enforcement action, Jay Darden (Paul Hastings and recently the Assistant Chief of the DOJ’s Fraud Section) stated: “it’s not the U.S. government’s job to regulate hiring policy.” (See here).

*****

In this Corporate Crime Reporter, Lamia Matta (Miller & Chevalier) states:

“Companies are less aggressive in [voluntarily] reporting. Companies are finding that they don’t save a whole lot by going in and self-reporting as soon as they find a problem. They are still subject to extensive investigation. The cost is the same if they self-report and then cooperate as it would be if they just cooperate. The agencies say that is not the case. But if you look at the trends, that does seem to be the case.”

“The other thing is that the decision to self-report is taking a lot longer than it once used to. Companies might think — it may make sense to self-report, but we are going to wait it out a bit before we do so. The process is now much more considered than it once used to be.”

“And companies are not as inclined to buy into the agencies’ aggressive theories of jurisdiction as they might have once been. For all of these reasons, you are seeing companies being less quick to self report. I don’t know if the self-reporting numbers are down or not. They are difficult to track.”

Spot-On

This Bryan Cave alert regarding the recent order in the DOJ’s enforcement action against Lawrence Hoskins (see here for the prior post) is spot-on.

It states:

“This holding directly contradicts the “guidance” provided by the U.S. in its Resource Guide, published jointly by the Department of Justice and the Securities and Exchange Commission. That guidance states unequivocally:

‘Individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate     the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.

* * *

A foreign company or individual may be held liable for aiding and abetting an FCPA violation or for conspiring to violate the FCPA, even if the foreign company or individual did not take any act in furtherance of the corrupt payment while in the territory of the United States.’

This Order reminds companies and individuals that some of the legal principles surrounding the FCPA recently have been developed out of settlements with the government instead of through the courts. On issues as important as these, it can be worthwhile to test some of the government’s theories in the only place they can be adjudicated.”

To learn about other selective information, half-truths, and information that is demonstratively false in the FCPA Guidance see “Grading the Foreign Corrupt Practices Act Guidance.”

Scrutiny Alerts and Updates

Ford Motor Co.

Reuters reports:

“The [SEC] is helping German prosecutors to investigate the alleged payment of bribes by Ford to speed the passage of containers through Russian customs, a source at the U.S. carmaker said on Tuesday. Ford and Schenker, the freight business of state-owned German rail company Deutsche Bahn, have been under investigation in Germany since 2013 over suspected bribery and other offences related to the busy Russian port of St. Petersburg. The port is Russia’s European gateway with more than 2,000 companies using it for shipments, according to its website, but it is also known among customers for notoriously long delays. The [SEC] has now joined investigations by prosecutors in Cologne, where Ford’s European headquarters are based, a source at the carmaker told Reuters, confirming a report in Tuesday’s Sueddeutsche Zeitung newspaper. Two Ford employees, eight current and former workers at Schenker and one staffer from a Russian contractor are under investigation, a spokesman at the Cologne prosecutor’s office said.”

Petrobras

In regards to this recent media report, the company stated in this filing:

“Petrobras hereby declares that, in relation to news published in the media concerning the payment of a fine to the U.S. authorities, there are no ongoing negotiations regarding the eventual payment of a fine for the winding up of civil and criminal investigations in the United States regarding the violation of the anti-corruption legislation. Nor has there been any decision by the U.S. authorities regarding the merit of such an investigation or the eventual amounts involved.”

SciClone Pharmaceuticals

One of the longest instances of FCPA scrutiny concerns SciClone Pharmaceuticals.  As highlighted in this prior post, in August 2010 the company disclosed:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

Recently the company disclosed:

“In July 2015, SciClone reached an agreement in principle with the staff of the US Securities and Exchange Commission (SEC) for a proposed settlement for a range of matters, including without admitting or denying possible violations of the Foreign Corrupt Practices Act (FCPA). The agreement, which includes disgorgement, prejudgment interest, and penalties totaling $12.8 million, is contingent upon the execution of formal settlement documents and approval of the settlement by the SEC’s governing Commission. The Company has not yet reached a resolution of these matters with the Department of Justice (DOJ) and management continues to work diligently to obtain closure on this matter.”

Akamai Technologies 

The company updated its previous FCPA-related disclosure as follows:

“We are conducting an internal investigation, with the assistance of outside counsel, relating to sales practices in a country outside the U.S. that represented less than 1% of our revenue during the three and six months ended June 30, 2015, and in each of the years ended December 31, 2014, 2013 and 2012. The internal investigation includes a review of compliance with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by employees in that market.  In February 2015, we voluntarily contacted the U.S. Securities and Exchange Commission and Department of Justice to advise both agencies of this internal investigation. We are cooperating with those agencies. As of the filing of this quarterly report on Form 10-Q, we cannot predict the outcome of this matter. No provision with respect to this matter has been made in our consolidated financial statements.”

General Cable 

The company recently disclosed the following regarding its previously disclosed FCPA scrutiny.

“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected in our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made or directed payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. Based on an analysis completed with the assistance of our external counsel and forensic accountants, we have concluded at this time, that we are able to reasonably estimate the profit derived from sales made to the Angolan government-owned public utilities in connection with the payments described above which we believe is likely to ultimately be disgorged. As a result, we recorded an estimated charge in the amount of $24 million as an accrual as of December 31, 2014. There was no change to the accrual in the second quarter of 2015. The accrued amount reflects the probable and estimable amount of the Angola-related profits that the Company believes is subject to being disgorged, and does not include any provision for any fines, civil or criminal penalties, or other relief, any or all of which could be substantial.
We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations and certain transactions in our Egypt and China businesses, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the DOJ and have provided them with additional information at their request, including information in response to an SEC subpoena. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. We are continuing to implement a third party screening process on sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. We also have provided anti-corruption training to our global sales force, and ultimately will provide such training to all salaried employees. In addition, we have hired a Chief Compliance Officer, who is responsible for the day-to-day management of our compliance function. The Chief Compliance Officer reports to our Chief Executive Officer, and also has a reporting relationship with the Audit Committee.”
Another Prosecutorial Common Law Defeat

Related to the above, one of the best guest posts in FCPA Professor history was this 2011 post from Michael Levy in which he described the concept of prosecutorial common law.  Prosecutorial common law is all around us.  Take a look at the footnotes of the FCPA Guidance - most of the “authority” cited for “legal” propositions is DOJ or SEC settlements.

For obvious reasons, prosecutorial common law does not sit well with federal court judges.  For instance, in U.S. v. Bodmer, Judge Shira Scheindlin of the Southern District of New York, in rejecting the DOJ’s position that the FCPA’s criminal penalty provisions applied to a foreign national prior to the 1998 FCPA amendments, noted as follows – “the Government’s charging decision, standing alone, does not establish the applicability of the statute.”  Likewise as noted in this previous post about the Giffen enforcement action, Judge William Pauley of the Southern District of New York stated that prosecutorial common law ”is not the kind or quality of precedent this Court need consider.”

Prosecutorial common law recently suffered another defeat when the Southern District of New York ruled that the Food & Drug Administration can’t bar a drug company from marketing a pill for off-label use as long as the claims are truthful.  (See here for the Wall Street Journal article).

The decision follows a 2012 decision in U.S. v. Caronia (see here for the prior post) in which the Second Circuit concluded that the DOJ’s theory of prosecution concerning so-called off-label promotion of drugs was invalid. Prior to Caronia and even after Caronia, the DOJ has used the theory of prosecution to secure billions in settlement against risk-averse pharmaceutical companies.

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A good weekend to all.

 

 

Friday Roundup

Friday, May 22nd, 2015

Roundup2Wal-Mart related, request for a new trial, scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 1Q FY2016 earnings call:

“FCPA and compliance related costs were approximately $33 million, comprised of $25 million for the ongoing inquiries and investigations, and $8 million for our global compliance program and organizational enhancements.”

Doing the math, Wal-Mart’s 1Q FCPA and compliance-related costs is approximately $516,000 in FCPA-related expenses per working day.

Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $516,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past six quarters have been approximately $563,000, $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $33 million (overall projection of $160 – $180 million for entire year)

Request for New Trial

Carlos Rodriguez, an individual convicted in a Haiti Teleco-related enforcement action (the focus of the 11th Circuit’s “foreign official” decision) and currently serving a federal prison sentence, has requested a new trial in this recent pro se motion.  In pertinent part, the motion states:

“In the instant case, an essential element of the FCPA charges hinged on whether Defendant had knowledge of the scheme to defraud Teleco . The factual predicate the Government relied upon at trial for proving that defendant had knowledge of the scheme to defraud Teleco was Perez ‘s [a cooperating witness] testimony .

Defendant has obtained new evidence , a sworn and notarized affiidavit from James Dickey , Terra ‘s General Counsel. Mr. Dickey ‘s affidavit states that ”he was never at any meeting at Terra or elsewhere where the subject of bribes to Antoine as International Director of Halti Teleco were discussed . Had the word ”bribe” been used in my presence in connection with the resumption of service with Haiti Teleco or the reduction of payments to that company, at any time during my tenure as general counsel, I would have remembered it and I would have immediately shut it down.

The affidavit demonstrates that ”facts” or ”evidence” the Government relied upon to show that Defendant had the requisite knowledge did not exist, and that the basis for his testimony against Defendant would have been completely impeached if this had been available at trial. In as much as the affidavit addresses an essential element of the FCPA offense, there is a reasonable likelihood that this new evidence would have affected the judgment of the jury, and, therefore, at a minimum, a new trial is required pursuant to Rule 33.”

Scrutiny Alert

Affinia Group (a North Carolina based company involved in design, manufacture, distribution and marketing of industrial grade products and services, including extensive offerings of aftermarket parts for automotive and heavy-duty vehicles) recently disclosed:

“As previously disclosed, the Company has conducted a review of certain allegations arising in connection with business operations involving its subsidiaries in Poland and Ukraine. The allegations raise issues involving potential improper payments in connection with governmental approvals, permits, or other regulatory areas and possible conflicts of interest. The Company’s review, which the Company considers to be substantially complete, has been supervised by the Audit Committee of Affinia’s Board of Directors and has been conducted with the assistance of outside professionals. Affinia voluntarily self-reported on these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission and has cooperated fully with the U.S. government. No determination may yet be made as to whether, in connection with the circumstances surrounding the review, Affinia may become subject to any fines, penalties and/or other charges imposed by any governmental authority, or any other damages or costs that may arise in connection with those circumstances.”

For the Reading Stack

An informative read here by Eric Carlson (Covington & Burling)  regarding the Chinese fapiao, a form of receipt that is often used in connection with various fraudulent practices.

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A good holiday weekend to all.